Navigating the Crisis: The VCP’s Efforts to Restructure the Economy and Fight Corruption

Introduction

This chapter focuses on the Vietnam Communist Party’s (VCP) efforts, especially in 2012, to promote its political legitimacy. In particular, the chapter will analyse Vietnam’s recent endeavours in restructuring the economy and intensifying its fight against corruption. These two measures have been adopted by the VCP as a major part of its wider response to the perceived decline in its performance-based legitimacy due to the country’s enduring socio-economic difficulties over the past few years. The chapter will argue that although both the economic restructuring and the fight against corruption have achieved certain progress, the actual results still leave much to be desired mainly because of the VCP’s unwillingness to embrace radical measures to reform the economy and to make its fight against corruption truly effective. As a result, although the two measures tend to help the VCP gain more popular support in the short term, whether or not they are sufficient to significantly improve the VCP’s political legitimacy in the long run is still unclear.

The chapter is divided into four sections. The first section analyses the rationale behind the VCP’s twin efforts by providing a background of Vietnam’s socio-economic and political conditions in recent years. The second and third sections will discuss recent developments around Vietnam’s economic restructuring and its intensified fight against corruption, respectively. Finally, the chapter will offer some analysis of the implications of the VCP’s above mentioned efforts for the country’s future economic and political outlook.

A Crisis within a Crisis

After the 1997–98 Asian financial crisis, Vietnam’s economy entered a second wave of growth before the country was hit by the 2008 financial crisis and the subsequent global economic recession. While the average annual growth rate for the period of 2000–07 reached 7.6 per cent, that for the 2008–11 period stood modestly at only 6 per cent.¹ Vietnam’s economic slowdown has been accompanied by high inflation with the average Consumer Price Index (CPI) increasing by 14.3 per cent annually from 2008 to 2011. High inflation has offset the positive effects of the already modest economic growth and lowered living standards of almost the entire population, especially wage earners and the poor. It has also led the government to tighten its monetary policy, causing the benchmark interest rate of the country to reach as high as 14 per cent in 2008.

Increased borrowing costs, coupled with shrinking demand from both domestic and foreign markets, caused production to shrink and forced thousands of businesses into bankruptcy.² For example, according to a report in the Saigon Times, 48,700 out of more than 400,000 businesses in Vietnam went bankrupt or ceased operations in the first nine months of 2011.³ The harsh economic conditions, together with poor management, have also brought some large state-owned economic groups and general corporations (GCs)⁴ such as Vinashin to the verge of bankruptcy. At the same time, sluggish economic conditions and widespread bankruptcy among businesses have led to mounting bad debts throughout the banking system. In June 2012, the governor of State Bank of Vietnam (SBV) Nguyen Van Binh admitted before the National Assembly (NA) that bad debts might have reached 10 per cent of the whole banking system’s total gross loans,⁵ triggering speculation that Vietnam may have to seek an IMF bailout.⁶

Despite certain improvements in the macroeconomic conditions in 2012, experts believe that Vietnam’s economic prospects will remain cloudy at least until the end of 2013.⁷ The country’s sluggish economic performance has added to the growing tension within Vietnam’s political system as the government of Prime Minister Nguyen Tan Dung has come under heavy criticism for flawed economic policy and poor management, especially regarding state-owned enterprises (SOEs). PM Dung was elected by the NA for a second tenure in August 2011 when the economy was still in a bad shape. In the first tenure, his ambition to accelerate Vietnam’s economic growth following...